Extra 300%: Rebuilding of the Yankee Brand Is a Story Waiting To Be Told

(In addition to appearing at The Captain’s Blog, this post is also being syndicated at TheYankeeAnalysts.)

Ever since “Moneyball”was published in 2003, authors have been lining up to tell the next best tale of mind triumphing over money when it comes to building a winning baseball team. Michael Lewis’ controversial look inside the front office of the Oakland Athletics not only spawned needless controversy and endless debate, but also inspired a litany of books, essays and articles about how various teams had broken the mold to uncover the keys to success.

According to Lewis, the Oakland Athletics were successful because GM Billy Beane had adopted a philosophy that embraced non traditional means of player evaluation. Contrary to the initial reaction, it wasn’t so much a tale of scout versus calculator, or a treatise about the value of OBP, but really a story about how a small market team could compete without the same financial resources of the monoliths in the bigger cities. In other words, the book wasn’t really about a particular stat or means of player evaluation, but a more traditional tale of David versus Goliath. Since Moneyball, books like Tom Verducci’s “The Yankees Years” and Jonah Keri’s “The Extra 2%” have presented similar arguments for how the Red Sox and Rays, respectively, were able to compete toe-to-toe with the Yankees, although in Boston’s case, their sling shot was much bigger.

Did the Athletics considerable success in the early part of the 2000s stem from the realization that drawing a walk was an undervalued talent, or because Beane relied more on statistics than scouting reports? Were the Red Sox successful because they employed the sabermetric formulas of consultant Bill James? Could the Rays have risen from the ashes without the Wall Street strategies used by the team’s new ownership group? Although all seem like very simplistic assumptions, let’s leave those debates for another day. In the meantime, I am more interested in the story of how Goliath got to be so big.

The Growing Value Gap Between the Yankees and the Average MLB Team
Source: Forbes.com

This morning, Forbes released its annual financial report on the economics of baseball. Not surprisingly, the Yankees continue to top the list in terms of revenue and franchise value, but the growing gap between the Bombers and the next closest (not to mention the average) team continues to amaze (especially when you consider the Yankees pay the most money into the revenue sharing pool). According to Forbes, the Yankees are worth $1.7 billion, or nearly twice the value of the second ranked Boston Red Sox. This valuation doesn’t even take into account the many other business ventures centered on, but separate from the team, including the Yankees’ stake in the YES network and Legends Hospitality Management. In total, Forbes estimates that all of the “Yankees assets” have an enterprise value of $5.1 billion.

It’s easy to dismiss the Yankees success as merely the result of being in the right place at the right time, namely New York City during the information age. That argument falls apart, however, when you look across town at the Mets, who are currently embroiled in a financial meltdown. Although the New York market has always been fertile, the team still had to plant the seeds of financial success. The two crown jewels in the Yankees’ empire are its new Stadium and regional sports network, but long before both came on the scene, principal owner George M. Steinbrenner had already placed the team on a path toward unprecedented financial strength. How he was able to revive a tarnished brand and restore it to heights unimaginable by even its own lofty standards is the story around which a book needs to be written.

I am sure many people aren’t interested in paying homage to Goliath, but his side of the battle is half the story. What’s more, wouldn’t David be even better off if he tried to learn a lesson or two from the giant rather than just focusing on how to refine his own weapon? Instead of having to scrape the bottom of the barrel, maybe teams like the Rays and Athletics could afford to pay more for premium talent if they focused as much wisdom off the field as they do on it?

Finding bargains, or arbitrage, isn’t the only way to pad the bottom line. Although financial realities dictate that not every team can be on the same footing (nor is there any reason to believe they should), the Yankees have demonstrated that new revenue streams can be discovered and, just as importantly, existing ones can be turned into rivers. A walk can often be as good as a hit, sabermetrics often trump traditional evaluation, and putting in that extra 2% will always go along a way, but the real undervalued commodity in baseball isn’t a type of player or method of analysis, but the game itself. If every other team exploited this resource as well as the Yankees do, Goliath would be able to pick on someone its own size.

8 Responses

Thanks for an interesting read, but citing the Wilpon-led Mets as the reason why the information age evidence does not fly is hardly persuasive. Moreover, get rid of the cartel that prevents another expertly run team like the Rays from relocating to a publicly-subsidized ballpark in Newark or Brooklyn and surely the valuation gap will narrow.

Why isn’t it persuasive? It’s hard for me to respond without further explanation.

I also don’t understand the relevance of your second point. Baseball has always had protected franchise territories, so why would that all of a sudden be a factor? Didn’t the team enjoy the same exclusivity ten years ago when its franchise value was a fraction greater what it is now?

Finally, I would debate whether the Rays are expertly run. Sure, they’ve had three consecutive very good seasons on the field, but that’s not exactly a long track record. What’s more, they haven’t been able to parlay it into financial success. Tampa isn’t exactly a backwater town. Also, theoretically, it sounds good to advocate allowing a third team into the NY market, but you also have to take into account the significant barriers to entry, not the least of which is finding a place to play.

You made the initial point that the “information age” had little impact on the Yankees incredibly high valuation. Simply referencing the rudderless Mets is insufficient and I still await evidence that the Internet and burgeoning telecommunications industry as a whole had little to no bearing on the club’s incredible financial valuation while they were winning on the field. Moreover, you never explain what exactly Steinbrenner did to so enhance the brand. (Hey, I could persuasively argue that Fay Vincent did more for the Yankees when he suspended King George, thereby allowing the farm system a chance to produce and promote homegrown talent.)

I mentioned the cartel environment because you are discussing the Yankees’ *current* valuation. Well, the easiest path to greater financial success for the Rays, A’s, and at least a dozen other teams — at the partial expense of the Yankees and Mets — would be to pack up their bags tomorrow and move to the NY metro area. Alas, the cartel *is* the barrier that prevents them from doing so.

Regarding the Rays specifically, keep in mind that the franchise is still overcoming the bad vibes from the previous regime. Also, check the unemployment statistics for the Gulf Coast of Florida; IIRC, Tampa/St. Pete has the highest unemployment numbers of any MLB city. Moreover, the ballpark is poorly situated and generally considered one of the worst venues to watch a baseball game.

By no means am I suggesting that the information age had no bearing. To the contrary, I think the Yankees’ ability to exploit the value of its “content” is one of the interesting stories to be told. My comparison to the Mets was to illustrate that simply being in New York wasn’t the only reason the Yankees have been succesful. What’s more, the information age has broken down many geographic barriers, meaning “home markets” should mean less than in the past.

From about the point GMSII opted out of the MSG contract to the present, the Yankees have been very aggressive expanding their reach (YES, a concession business, exclusive sponsorships, international market deals, a new Stadium, a memorabilia company, etc.), so much so all of the team-related assets amount to an enterprise value of $5 billion. That’s pretty impressive for a sports franchise. I’d like to know all the machinations that went into building such a vast empire.

The Fay Vincent argument is really a fallacy too. Gene Michael certainly laid some of the groundwork for the Yankees resurgence during Steinbrenner’s suspension, but the team made the most progress beginning in 1993, when the Boss was reinstated. You can’t divorce Steinbrenner from any of the Yankees success that point.

Following up on the point about territorial rights, even if all markets were thrown open, it would still be very difficult for a team to just up and move to New York. They would be forced into a position of competing in an entrenched market at the same time they’d have to incur immense costs just to set up operations. The Mets are in hot water with an established fan base because of the debt they took on to build a new stadium. Even if a third team could get the same financial assistance from the city, they’d still be looking at years of negative cash flow. Considering that teams like the Rays already boast healthy EBITDA, I am not sure why they’d want to take that immediate risk.

Also, I would again point out that the Yankees enjoyed the same two-team exclusivity in 1998, when its value was only a fraction of what it is now. Obviously, something other than a protected market led to the increased valuation.

Finally, about the Rays, I would also argue that the team enjoyed the benefits of some of those bad vibes in the form of several top draft picks (you can’t dismiss the value of having players like Delmon Young, David Price, BJ Upton and Evan Longoria). I don’t dispute that the Tropicana Dome may be a poor place to watch a team, but the franchise has had almost no traction in the market despite three winning seasons. Is that fully the fault of the Tampa market? I don’t think so.

As for draft picks, the old regime did not always screw up, but “The Extra 2%” does chronicle how they missed out on Albert Pujols. By the way, it is impressive that the front office amassed 11 of the top 75 draft picks despite winning the division. (Sure, they lost Crawford and Soriano, but also obtained new blood without losing any picks.)

The Rays attendance trend line is promising and the team will almost certainly draw over 2M fans this for the first time since the inaugural season, despite a G*d-awful economic situation. (Don’t forget: even the Yankees did not hit 1M fans from 1931 until 1946.)

The Mets financial woes off the field are principally linked to Madoff, not Citi Field. By the way, without Rudy’s incredible municipal bond generosity, neither Citi nor NYS would have been built. Naturally, the Rays would have a difficult time finding a place to play, but it is worth pointing out that as late as 2007 there was little resistance to taxpayer-supported ballparks.

I am not trying to say the Rays are poorly run, but I think the attempt to paint them as a particularly well run franchise is at least a little premature.

I agree that the Mets financial woes are largely tied to Madoff, but keep in mind, the Mets had been using the Madoff accounts to subsidize the team for years. What has them in a bind is those funds are no longer available. There’s no way to argue that the Yankees haven’t run their business leaps and bounds better than the Mets despite sharing the same market.

Also, the Yankees and Mets struck their stadium deals with the Bloomberg administration (prior deals with Rudy were scrapped). As I’ve noted in previous posts, those deals were not as generous as many have made them out to be, as evidenced by the significant debt payments both teams must now make for the next several years. These were not tax-payer supported stadiums, but tax-abated financing vehicles. In other words, if the Rays got the same deal, they’d be responisble for about $50-$70 million in annual debt payments. Is that something they could afford until a fan base is built? I am not so sure.

Time will tell on the Rays. Of course, the Jays and, to a limited extent, the Os have become smarter franchises, so it will become even more challenging for them to compete for the division’s top spot.

I will go back and re-examine the stadium deals when time permits, although, regardless of the ultimate impact on the taxpayer, neither Citi nor NYS was desperately needed.

Absolutely, from the early 90s until the present, the Yankees have run all of their affairs head and shoulders above the Mets. The Alderson-led front office should make the Amazins relevant again, but it will take some time.